Millions of pounds will have to be raised through council tax increases to pay for a controversial merger of police forces ordered by the Home Office, which will see a third of forces disappear.

The mergers of smaller rural forces with their neighbours are supposed to give them more clout to fight terrorism and organised crime.

Although long-term savings are expected with job losses among backroom civilian staff, police forces argue the short-term costs of redundancy payments, public consultation and reorganisation will be high.

However, forces have been told there is no government money to pay for the shake-up - and the Home Office has admitted council taxes are likely to rise 'for some forces' to pay for it. Three forces are now considering challenging the mergers in court.

In a private letter seen by The Observer, the chair of the Association of Police Authorities also asks the Home Secretary, Charles Clarke, for assurances that the restructuring 'does not involve council taxpayers digging even deeper into their pockets'.

The implications for taxpayers who are already resentful at soaring bills could be politically explosive.

'This is a hell of a lot of money that they going to have to borrow,' said Frank Cook, the Labour MP for Stockton North, which is covered by Cleveland Police. 'If you bear in mind that's going to attract finance charges of something like 7 per cent a year, it's going to be a millstone around the police authority's neck - and that means a millstone around the council taxpayer's neck.'

Every local police authority charges a 'precept' for policing which is added to council tax bills. Cook said Cleveland, due to merge with Durham and Northumbria under the plans announced last month, had calculated it will need to borrow £50 million to fund the merger - and that servicing the loan will cost £5m a year, prompting a rise in the precept.

With forces now compiling their business cases, which must be submitted to the Home Office by 23 December, chief constables have begun urgently lobbying their MPs about the potential consequences.

Philip Hollobone, the Tory MP for Kettering, said he had been told that his local Northamptonshire force, which is due to be merged with Lincolnshire and Leicestershire, will have to borrow up to £100m: Kent, due to merge with Sussex and possibly Surrey, has told local MPs that it will take up to a decade to pay off the money it will have to borrow.

Clarke and policing minister Hazel Blears met privately with Labour MPs last week to try to head off a growing revolt. The Home Office is understood to be scratching around for extra funds to soften the blow, and insists no final decisions have been taken.

However, its acting director of policing, Andy Ford, told police authorities at a conference last month that the money from restructuring 'will have to come from borrowing as part of your business cases, as the government does not have the money'.

A Home Office spokeswoman insisted that this was 'not the final position', with talks ongoing. However, she added: 'There may be a rise for some forces in council tax: the majority will see a fall. We are not doing this to cut costs but we think there will be some efficiencies in back offices. We don't accept there will be a rise in precept in all areas.'

The letter from APA chair Bob Jones to Clarke argues that it will oppose the reorganisation until the funding question is settled, adding: 'Authorities want reassurances that, if the government wants restructuring to take place, it is prepared to invest to save: they want confirmation that there will be additional funding to meet the start-up/transitional costs of any mergers.'

In the same letter the APA seeks reassurances that the re-organisation 'does not involve council taxpayers digging even deeper into their pockets'.

The Observer understands that Gloucester, Cleveland and North Wales police forces are considering seeking a judicial review to appeal the restructuring plans unless they receive reassurances over funding.

The Police Federation of England and Wales, representing rank-and-file officers, also warned that the rushed restructuring could cause long-term damage.

Chairman Jan Berry said there were fears the changes are 'not all achievable in one go', adding the process was affecting officers' operational ability: 'All the time you're doing these changes you're still having to police. We must have an entire police force devoted to structural changes at the moment. You're taking an awful lot of feet off the street.'

The mergers follow a report from HM Inspector of Constabulary which concluded that larger forces could pool their expertise in big investigations.